Nothing regarding the Peoples’ Republic of China can be taken at face value. The abrupt devaluing of the Chinese Yuan normally signals trouble in the manufacturing and export industries. Against the US dollar, the yuan has been devalued 2.9% in two days. This has money policymakers in the western world scratching their heads. The Chinese government has been under pressure to increase the value of their currency with relation to the US. Instead the opposite has happened. Without explanation. The policymakers in China do not have to answer to the public and have not offered any explanations. The rolling Chinese stock market has also been subject to a huge write down. In a few days it lost 32% of its value, prompting the government to ban large stock holders from divesting their stocks.

At that point the paper loss amounted to $4 trillion USD. In addition, state-run institutions received orders to buy. Manipulation of markets is not new in the PRC. Two years ago an artificial and sudden credit crunch was engineered which saw interest rates shoot up to nearly 13%. Why should we in the west care? China’s influence in today’s trading climate is huge. Raw materials are purchased and manufactured goods are sold world-wide. 38% of world economic growth in 2014 was due to China. When a country devalues its currency or it is devalued by free market forces, the goods it sells are cheaper on the world market. The flip side of that is all imports to that country suddenly become more expensive. When the Canadian dollar started a slide in December 2013 it continued downhill until it currently hovers around 75% of the value compared to the USD. Nothing regarding the PRC should be taken at face value. This may be the start of a currency war in which countries engage in competitive devaluations in order to maintain market shares. Or it may be that the economic miracle that brought China to the front row of trading nations has run its course. Sources:The GuardianBloomberg Financial Post

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